Ross Stores brings some cheer to the retail industry

Discount clothing chain Ross Stores reported strong sales and profits last night, blowing away both analyst expectations and guidance given by the company three months ago. Shares ended the day with a 10.7% gain.

Sales were up 8% to $3.43 billion on surprisingly high comparable-store sales growth of 4%. Earnings grew 15% to $0.82 per share. The company had forecast comp gains of 1% to 2% and EPS of $0.73 to $0.76. Analysts were looking for per-share earnings of $0.77 on revenue of $3.37 billion.

Sales gains came from increases both in traffic and in average transaction size, and were broad-based across geographies. Operating margin was above company expectations due to higher merchandise margins and operating leverage, improving to 14.9% compared with 14.4% a year earlier.

“We are pleased with the better-than-expected growth we delivered in both sales and earnings in the second quarter, especially given our strong multi-year comparisons and today’s volatile retail climate,” said CEO Barbara Rentler in the press release.

Looking forward, the company forecasts same-store sales growth to be in the range of 1% to 2% for the second half, and full-year earnings to come in at $3.16 to $3.23 per share, or growth of 12% to 14%.

Ross’ second-quarter beat was not an isolated event; the company has been regularly putting up strong growth numbers in recent quarters, demonstrating that shifts in retail are producing winners as well as losers in brick-and-mortar chains.

Foot Locker makes a misstep

Athletic shoe retailer Foot Locker announced quarterly results that missed expectations so badly that the stock plunged 28% and dragged down shares of other companies in sportswear and footwear. Sales fell 4.4% to $1.7 billion on a 6% decline in comparable-store sales. Earnings per share were $0.39 compared with $0.94 a year earlier. Excluding a one-time charge due to a lawsuit, EPS would have been $0.62, but analysts were expecting $0.90 in per-share earnings on revenue of $1.8 billion.

Blaming industry trends for the miss, company officials had little optimism to offer about the rest of the year. “While we believe our position in the market for premium sneakers remains very strong and our customers continue to look to us for compelling new athletic footwear and apparel styles, sales of some recent top styles fell well short of our expectations and impacted this quarter’s results,” said Chairman and CEO Richard Johnson in the press release. “At the same time, we were affected by the limited availability of innovative new products in the market. We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down three to four percent over the remainder of the year.”

Declining mall traffic and the growth of online sales have hit some retailers particularly hard, but this quarter may hold signs that the company is fighting yet another headwind: a slowdown in the athleisure trend . That prospect and the magnitude of the negative surprise had investors lacing up their shoes and sprinting away from Foot Locker stock today.

Offer from The Motley Fool: The 10 best stocks to buy now Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor , has tripled the S&P 500!*

Tom and David just revealed their ten top stock picks for investors to buy right now.

Click here to get access to the full list!

* Stock Advisor returns as of August 1, 2017.

Jim Crumly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.